Congress returns from recess next week facing a month-end deadline to fund government operations for the next fiscal year. I’m concerned we could be looking at a reprise of 2013. That year, the federal government shut down on October 1 for sixteen days over a Republican proposal to defund the Affordable Care Act. Now, Republicans are talking about defunding Planned Parenthood, a proposal the President is almost certain to veto. More broadly, there is significant disagreement on funding for social programs generally (the President wants increased funding; the Republicans are calling for social program cuts). If these disagreements cannot be breached, the government faces an October 1 shutdown.

The difference this time is when the debt limit must be raised to allow the federal government to borrow additional funds. In 2013, the government ran out of money and had to borrow by mid-October, setting up an incontrovertible deadline that Congress had to address, reopening the government in the process. This year, we’re told that the government will not need to borrow more money before November or even December. So, if the government shuts down, what will force Congress to compromise and reopen it in the near term?

Historically, markets often are volatile as fiscal deadlines approach and Congress appears unable to agree on a solution – until it does. Investors might consider taking action to protect against volatility until these deadlines have been addressed. More aggressive investors might view a pullback as a buying opportunity; markets tend to recover nicely after Congress finally agrees to raise the nation’s borrowing limit (as Congress invariably will do here, likely at the last possible moment).

Andrew H. Friedman is the principal of The Washington Update LLC and a former senior partner in a Washington, D.C. law firm. He speaks regularly on legislative and regulatory developments and trends affecting investment, insurance, and retirement products. He may be reached at www.TheWashingtonUpdate.com.

Neither the author of this paper, nor any law firm with which the author may be associated, is providing legal or tax advice as to the matters discussed herein. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. It is not intended as legal or tax advice and individuals may not rely upon it (including for purposes of avoiding tax penalties imposed by the IRS or state and local tax authorities). Individuals should consult their own legal and tax counsel as to matters discussed herein and before entering into any estate planning, trust, investment, retirement, or insurance arrangement.

Recently, Ryan and Tim were asked by STAFDA, a large national trade association we have spoken to, to write an article for their upcoming trade magazine. This article highlights the impact of collaboration with an entrepreneurial family group and their advisory team.

Last week the President gave a speech in which he focused on forthcoming Labor Department rules intended to ensure that IRA holders receive investment advice unencumbered by financial advisor conflicts of interest. In conjunction with the President’s speech, the Labor Department will be re-issuing proposed rules addressing the extent to which financial advisors may receive compensation in connection with investments made by IRAs and other retirement accounts they advise. The new proposed rules should be available in the next 60-90 days.

The Labor Department first issued proposed rules on this subject in 2010. Of great concern to the financial services industry, the 2010 proposed regulations effectively would have precluded financial advisors from receiving commissions and other payments on IRA transactions and investments. DOL withdrew the proposal in 2011 due to public pressure and concern.

The President’s comments last week contained a good bit of anti-Wall Street rhetoric (“A system where Wall Street firms benefit from backdoor payments and hidden fees if they talk responsible Americans into buying bad retirement investments – with high costs and low returns – instead of recommending quality investments – isn’t fair.”). They make clear that the Administration is determined to continue to press this issue in some form. At the same time, the White House material accompanying the comments states that the new proposal will “ensure that all common forms of compensation, such as commissions and revenue sharing, are still permitted.” This language suggests that the new proposal will be more lenient than the original.

For instance, the new proposal could permit all forms of advisor compensation but require the advisor to disclose to the client conflicts of interest, such as where particular investments result in higher commissions or other payments to the advisor.

The Administration’s continued concern about arrangements that heretofore had not been thought to pose problems is worrisome from the perspective of the securities industry. On the other hand, the fact that all forms of compensation will remain acceptable suggests that the newly proposed regulations will be at least somewhat less harsh. My guess is that the industry is still likely to be unhappy with the new proposal, and will push back once it is announced. The DOL has said the public will have the opportunity to comment on the proposal, including at a public hearing, before final regulations go into effect, so the matter is far from resolved.

Andrew H. Friedman is the principal of The Washington Update LLC and a former senior partner in a Washington, D.C. law firm. He speaks regularly on legislative and regulatory developments and trends affecting investment, insurance, and retirement products. He may be reached at www.TheWashingtonUpdate.com.

Neither the author of this paper, nor any law firm with which the author may be associated, is providing legal or tax advice as to the matters discussed herein. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. It is not intended as legal or tax advice and individuals may not rely upon it (including for purposes of avoiding tax penalties imposed by the IRS or state and local tax authorities). Individuals should consult their own legal and tax counsel as to matters discussed herein and before entering into any estate planning, trust, investment, retirement, or insurance arrangement.

In order for you to confidently move forward with big decisions in a manner you haven’t previously, you need an approach that invites three key dynamics into the room: your entrepreneurial spirit, the relational factors unique to closely-held or family business and the technical aspects of sound planning. You have to get to that point of instinctual clarity about how you’d like your story to play out from here forward.

However, your advisors also have a responsibility to know your story. In order to do this, there must be a process that allows them to take the time and have the respect to hear the full story of all the stakeholders in the planning process before recommending any action. You need to learn how potential planning will affect their lives; how they make decisions and the motivations they bring to their role. Sometimes people just need to be heard. Yet sometimes they have a legitimate issue that will impact the plan. I believe it’s imperative to get all the necessary players into the arena and on the team at the onset. Anything else is inefficient.

So how do you do this? You do it through deep discovery with all key stakeholders – meaning anyone who’s going to be affected by decisions you will make either financially, emotionally or from a business perspective. This can include: spouses, business partners, key employees, active and inactive children, key advisors, bankers, key business relationships and more. It’s the people part where most if not all planning processes get derailed, technical solutions come later.

Once this deep discovery is complete, the findings should be organized and distilled down into a document that outlines ten to twenty of your macro goals. These are goals and objectives that absolutely cannot be violated, period. Regardless of the effectiveness of a strategy, if it violates one or more of the macro goals, it should never be presented for consideration. This will keep you on track and provide you with benchmarks for measuring success.

Next, you must embrace a process that allows advisors to truly collaborate. Some families feel that bringing advisors together for group meetings may increase fees. Ironically, if organized properly the opposite occurs. With communication occurring real-time amongst all parties, better ideas are formulated in less time, often reducing fees, taxes or other expenses. The team arrives at more relevant solutions faster and there’s less chance of one person’s style driving the result.

Last but not least, do not try to do this yourself! It’s hard enough to run your business, but doing it while managing a complex process with so much at stake is nearly impossible. As soon as the process diverts your attention from what makes you money, you’ll table the subject until the “right time” which never comes. Procrastination can cost money and more important, it limits your choices. Hire a professional with a multidisciplinary background. Make sure they have the capacity to understand all the dynamics at play (entrepreneurial, relational and technical), and will hold all the accountable parties accountable.

Ryan Barradas (ryan@wealthpoint.net) and Tim Young (tim@wealthpoint.net) are co-founders and partners of WealthPoint, LLC in Phoenix, AZ. WealthPoint is a nationally recognized firm focusing in the areas of succession, exit and wealth transfer planning for entrepreneurial family groups.

In our previous articles in this series we discussed the entrepreneur’s need for a decision-making process versus a planning process. Furthermore, we covered the fact that good decision-making is governed and grounded by gut instincts. So what prevents us from making decisions? What enables us to procrastinate and kick the proverbial can farther and farther down the road?

We often seek out or are offered help with succession and exit planning without a process to gain clarity on the following: the relational factors that are unique to closely held business, the operational needs of the company and a way to see all of this transpire numerically. We believe the primary reason most plans never get off the ground is that they are driven by solutions or the technical aspects of sound planning. Tax and legal advisors are attempting to solve the income and estate tax issues along with ownership succession matters. The technical or tax tail begins to wag the dog. Before you know it, you become overwhelmed with solutions that fail to address some of the basic needs that are at play in the back of your mind. Instinctually, you know there is more to the puzzle.

Below is a list of common reasons we see that most plans fail:

They ignore basic business issues – what does the business need in order to support the needs of all of the stakeholders?

They fail to address the “void” left by the involvement in business – passion can be channeled in other directions so long as there is comfort in leaving.

They fail to adequately address family financial security – When do you cross over the line from “I need more” to “I have enough”?

Too many moving parts (too complex) – the best plan isn’t the one with the most tax savings or looks the prettiest on paper. It’s the one you can implement, live with and maintain.

They don’t involve “the next generation” – what are the needs and desires of the next generation? What are their expectations?

They don’t involve “the key employees” – how are you going to get where you want to go unless you know your key employee’s goals, desires and expectations?

Professionals are conflicted out of representing multiple parties – when there are conflicting interests, tax and legal advisors are forced to serve one client.

Everyone wants to avoid confrontation – any business is successful due to its ability to avoid drama. However, some relational issues cannot continue to be swept under the rug.

They rely upon the owner(s) to drive implementation – this only lasts for a short while. Once the owner’s primary duties suffer, progress halts.

There is no way to measure success.

Without a process to avert one or more of the above, smart people might move forward in planning for a little while, but when it comes time to execute, they back away from the table. There’s simply too much at stake with their wealth, their business and their relationships to risk faltering.

In our next article, we will define the components of a successful planning process to avoid the pitfalls above and describe how to get started.

Ryan Barradas (ryan@wealthpoint.net) and Tim Young (tim@wealthpoint.net) are co-founders and partners of WealthPoint, LLC in Phoenix, AZ. WealthPoint is a nationally recognized firm focusing in the areas of succession, exit and wealth transfer planning for entrepreneurial family groups.

In our last article we defined succession and exit planning as a process that facilitates two events: financial security during retirement and success in the absence of current leaders. In order to do this effectively succession planning must be addressed on five levels: management succession, ownership succession, relationship succession, cultural succession and last but not least, leadership succession.

The only way a company and current leaders can grow is through embracing a culture of succession. This must be initiated and modeled by senior leadership. Individuals must check their ego at the door and look to find the next generation of leaders. Some companies do this naturally while many others often operate with star players in a very fragile organizational structure.

Let’s address each level of succession. Management succession is a process that allows for the growth and development of emerging talent in an organization. Managers must look at the situation like this: “In order for me to grow, I must find my successor.” Weak individuals may shy away from this while strong team members will embrace it. The cream rises to the top.

Ownership succession is simple, yet complicated. Ownership succession and management succession can become entangled in our thinking. But, ownership succession simply addresses who will be the next generation of stockholders. This doesn’t mean they will lead, manage or run the company. It merely means that they will own the stock and benefit from profits and dividends.

Relationship succession is a crucial and often overlooked piece of the puzzle. Organizations often ride on the backs of strong relationship managers. You need to avoid and plan for problems that could be crippling if one of those people should leave, get sick, die or quit. It’s a process, not an event. A conscious effort must be made to bring new faces into key relationships to shore up the problems that could exist if not addressed.

What makes a company great is its culture. Culture is the vibe or beat that any organization marches to and is driven by strong leaders. In order for a company to stay great, it must stick to the recipe that got it there in the first place. Culture is driven, fostered and controlled by strong leadership and must be backed up by an undying commitment to mission and vision.

Last but not least, leadership succession. This is something that the largest companies struggle with. In small, family or closely held businesses we need to remember that the “gene pool” is not always the deepest talent pool to pull from when searching for the next generation leaders. Leadership is earned, not bestowed. Furthermore, if you have an organization that has been driven by a dominant personality throughout its history, you may have to look outside of the organization to find a leader that will garner the respect and admiration of the troops. Promoting from within can be successful, yet in many cases it can be detrimental.

In our next piece, we will address the common reasons why most plans fail.

Ryan Barradas (ryan@wealthpoint.net) and Tim Young (tim@wealthpoint.net) are co-founders and partners of WealthPoint, LLC in Phoenix, AZ. WealthPoint is a nationally recognized firm focusing in the areas of succession, exit and wealth transfer planning for entrepreneurial family groups.

What is succession and exit planning? It’s a process that helps to facilitate one of two events and sometimes both. First, it plans for the entrepreneur to eventually become financially independent of the operating asset as their primary source of cash flow. Second, it could help the operating asset become independent of the entrepreneur as its primary driving force. How can I walk away with enough cash or how can I get a competitive rate of return on my business asset?

You will exit your business somehow, someday. It can only happen in one of five ways: Death, Disability, Voluntary Sale, Retirement or Bankruptcy/Orderly Liquidation. Regardless of your method of exit, in order to maximize your value and/or the likelihood the business will succeed you; the business must be managed as if it were for sale on any given day. The same things that are common discounts at the time of transfer in a third party sale can sabotage an intra-family succession plan or sale to key employees.

As an entrepreneur, your big decisions are inseparable from who you are as a person. So your decision making is defined by your ability to arrive at unshakable gut instincts. You need a process that allows the subconscious layers of bias peel away and give rise to pinpoint wisdom about desired outcomes. You need to get to that place of instinctual decision-making you know and trust.

Without this level of clarity, you might move forward with planning for a little while, but when it comes time to execute, you’ll back away from the table. There’s simply too much at stake with your wealth, your business and your relationships to risk faltering. This is why planning and decision making must bump up against objectives in all three realms: relational, operational and numerical.

In order to do this, it must transform from the traditional planning process to a decision making process. For advisors, we all love great planning processes. But for you the entrepreneur, the planning really happens in the background. What you need is a process that allows you to make pinpoint decisions about desired outcomes. Where am I today? Where do I need to go? Who do I feel responsible for? Whose feelings do I need to be mindful of? What are the business and personal risks I want to mitigate? What’s my time frame? Once you create well-defined macro goals, decision making becomes infinitely easier. The latest “flavor of the month” or other crazy business idea no longer derails or distracts you from your long-term objectives if they don’t pass the test: Do they help me accomplish all or a majority of my macro goals? If not, move on.

In the remaining three parts of this four part series we will help you to understand how to create a culture of succession and address it on five levels (ownership, management, leadership, relationship, and cultural), address why most plans fail, and finally how to get a successful succession and exit planning process off the ground.

Ryan Barradas (ryan@wealthpoint.net) and Tim Young (tim@wealthpoint.net) are co-founders and partners of WealthPoint, LLC in Phoenix, AZ. WealthPoint is a nationally recognized firm focusing in the areas of succession, exit and wealth transfer planning for entrepreneurial family groups.

For hundreds of years, affluent families have been guided by their advisors to steward their material assets. Attorneys, CPAs, investment and insurance advisors and financial planners all come to the table to help you identify the best course of action. The stewarding of your financial or material assets is actually only one-third of the process. The two additional elements are beginning to surface in more conference rooms and family rooms than ever before.

The second and third elements of planning include 2. the communication of your decisions to those who’ll be impacted by them, and 3. The quality of communication that exists within the family system in general. When all three areas have been tended to, families achieve holistically wealthy relationships.

Why is open communication with heirs important?

So many times we see families concerned that if their heirs knew of their substantial impending inheritance, it would rob them of drive and work ethic and implant a sense of entitlement that derails their adult life.

In reality, there are many programs and models available for mentoring heirs to be effective wealth owners. By beginning the process while you’re here to participate, you can observe and influence the training process. You can help ensure that the inheritance doesn’t derail the heirs and that the financial resources are used for great causes, not squandered. You can leave this world knowing that your heirs understood who you were, how you amassed the wealth and what you hope will happen with it in the future. That’s why communicating the nature of your decisions is so crucial to establishing wealthy relationships.

Quality of communication: not just what but how…

The third element of wealthy relationships is the quality of communication that exists or can be aspired to within your family system. Just like in marriage, the better the foundation for communication, the greater the likelihood that relationships can survive difficult times. This is a crucial and wonderful area that can be addressed during your lifetime regardless of the age of your heirs. Even relationships with and between adult children can be repaired and strengthened. Again there are entire processes and advisory disciplines based on the improvement of family communication.

Picture your heirs thirty years from now sitting around a family dinner table. What do you aspire for in the future of those sibling relationships and developing family units? Consider your ability to influence what’s happening at that family dinner simply by doing the heavy lifting to increase the quality of communication in your family today – to equip them with communication skills just as you’ve equipped them with morals, values and integrity. This is the third element of wealthy relationships.

If these aspects of planning appeal to you, ask your advisors how to bring the process and conversations to the proverbial planning table. And with the holidays approaching, there’s no better time for families to rally around their long term goals and commitments to each other.

Most successful people have planned for the future of their financial resources through the use of investments, insurance and legal documents. Fewer have tended to the non-financial aspects of planning for the future of family, reputation and contribution.

The topic of wealth has many stigmas in today’s society and as such, families of substantial resources often struggle with discussing big issues surrounding money. As a result, related topics of non-financial planning are less likely to be a part of the family’s conversations. However, it is possible to decouple the conversations and begin talking about the non-financial aspects of your family’s future before or without discussing dollars and distribution plans.

Begin with a discussion around goals and aspirations

Non-financial planning can address several key layers of self and family. We recommend beginning with one area and creating a structure or an opportunity to begin thinking about and documenting your goals and aspirations. Start with an area that feels highly accessible. For some, it’s easiest to work through your goals for yourself first. Others find that an upcoming family vacation or dinner offers a great forum for a group discussion.

› Philanthropy for the family as a whole, currently and into the future

Here are some questions that can stimulate your thinking:

› What would you like to see happen?

› What would you like to be known for or remembered for?

› What impact would you like to have?

› What values or behaviors would you like to see embraced?

If you begin with a group discussion, consider ways to jump start everyone’s thinking. Scan the newspaper for causes about which you’re passionate. Ask everyone to write down the relationships, activities or values that are most important to them. Then branch out into the questions noted above.

In order for individuals and families to maximize their impact and contributions, non-financial planning must be seamlessly integrated with a family’s financial resources. Only then can the family’s goals and aspirations guide the structure, planning and long-term use of their material resources.

Securities offered through Kestra Investment Services, Member FINRA/SIPC (Kestra IS). Investment advisory services may be offered through Kestra Advisory Services (Kestra AS), an affiliate of Kestra IS. WealthPoint, LLC is a member firm of PartnersFinancial. Kestra IS and Kestra AS are not affiliated with WealthPoint, LLC or PartnersFinancial. Not all products and services referenced on this site are available in every state or through every representative listed. For additional information please contact Kestra IS compliance at 737-443-2483. Kestra IS and Kestra AS are not Certified Public Accounting firms.
Check the background of this Firm and/or investment professional on FINRA's BrokerCheck. Social Media Disclosure link here. WealthPoint, LLC is independently owned and operated. WealthPoint, LLC and its agents are presently licensed to sell traditional life insurance in AZ, CA, CO, IL, IN, KS, MA, MD, MI, MO, MN, NC, NM, NV, NY, OR, RI, TX, VA, WA. Insurance services are limited to residents of the above listed states. Information relating to securities is intended for use by individuals residing in AZ, CA, CO, NM, and NY only. This site is not intended as an offer to sell securities, which may be done only after proper delivery of a prospectus and a client suitability review.
The following trademarks are owned by WealthPoint, LLC; WealthPoint®, Know your story.™, Still Wisdom™, Instinct Verification™, The Pulse of Progress™, IV™, Singular Story™.